Stocks Soaring into Final Hour on Less Financial Sector Pessimism, Short-Covering and Bargin-Hunting

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Computer longs, Biotech longs, Semi longs, Retail longs and Medical longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is very bullish as the advance/decline line is substantially higher, every sector is gaining and volume is above average. Investor anxiety is high. Today’s overall market action is very bullish. The VIX is falling 13.2% and is very elevated at 63.04. The ISE Sentiment Index is below average at 124.0 and the total put/call is slightly below average at .75. Finally, the NYSE Arms has been running low most of the day, hitting .31 at its intraday trough, and is currently .45. The Euro Financial Sector Credit Default Swap Index is falling 2.78% today to 113.17 basis points. This index is up from a low of 52.66 on May 5^th, but down from 157.81 on Sept. 16^th. The North American Investment Grade Credit Default Swap Index is down 8.7% to 254.86 basis points. The TED spread is rising .5% to 215 basis points. The TED spread is now down 249 basis points in under six weeks. The 2-year swap spread is up 3.73% to 113.38 basis points. The Libor-OIS spread is falling .9% to 168 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 22 basis points to .23%, which is down 239 basis points in under five months and at the lowest level since Bloomberg record-keeping began in August 1998. The 10-year TIPS spread bottomed at .65% in October 1998 during the Asian financial crisis and at 1.24% in October 2001 during the technology bubble-bursting meltdown. The 3-month T-Bill is still yielding .01%. Many market-leading stocks are substantially outperforming the major indices today. As well, the 16.2% spike in the (XLF) in response to the (C) news is a huge positive. I am getting a technical sell signal on the VIX Index for the first time in almost five months today, which is also a positive. I haven’t added back to my (GOOG) long yet, but longer-term investors selling around current levels are making a big mistake, in my opinion. The stock has become absurdly cheap given future growth opportunities. I expect Asian equities to play catch-up to US/European stocks tonight, which could provide another boost here in the morning. While we are getting extended very short-term, I still see substantial upside to stocks from current levels by year-end. Nikkei futures indicate an +610 open in Japan and DAX futures indicate a +30 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on less financial sector pessimism, diminished forced selling, short-covering, bargain-hunting, technical buying and seasonal strength.